Thursday, 21 April 2016

Parrikar denies Rafale contract sealed, contradicts BJP

By Ajai
Shukla

Business Standard, 22nd Apr 16

Illustrating
the problems in concluding a pricey contract with French company, Dassault, for
36 Rafale fighter aircraft, Defence Minister Manohar Parrikar on Thursday
distanced himself from an earlier claim by the ruling party that the deal had
been “finalised at $8.8 billion” (Rs 59,000 crore at current exchange rates).

Speaking to
journalists in New Delhi, Parrikar issued a measured clarification that the
deal is at “an advanced stage”, and the government intends to “close it quite
soon”.

The defence
minister is some distance from the ruling Bharatiya Janata Party (BJP), which has
already claimed the Rafale contract as a victory. On Tuesday, the party had tweeted:
“Rafale deal: ‘Strengthening defence capabilities’ – Modi government saved $3.2
billion out of $12 billion deal.”

The party tweet
was accompanied by an elaborate graphic that stated: “The deal to buy 36
state-of-the-art Rafale aircrafts (sic) from France at $12 billion (around Rs
80,000 crore) was re-negotiated and finalised at $8.8 billion (around Rs 59,000
crore).”

The BJP
tweet referred to the Rafale contract as a done deal, with negotiations in the
past tense.

Parrikar
today contradicted that, stating: “I still can’t say that negotiations are
totally cleared until we sign the deal, or at least the deal is forwarded to
the Cabinet for approval.”

This is the
heart of the contradiction: The BJP, facing flak for being weak on national
security after its outreach to Pakistan, needs to brandish a high-profile
defence procurement success like the Rafale. However, government negotiators and
decision makers know they could face years of awkward questions over a price
tag that is hard to justify.

The $8.8
billion tag, distributed over 36 aircraft, puts the cost of each Rafale at $244
million (Rs 1,640 crore). That is more than thrice as expensive as the highly
capable Sukhoi-30MKI, which costs Rs 450 crore; and about six times as costly
as The Rs 275 crore Tejas LCA Mark IA, which is scheduled for production in
2018.

Senior
defence ministry sources that are close to the negotiations speak of deep
disquiet amongst negotiators at the pressure to conclude the contract. The negotiators
point out that Dassault had quoted $18-20 billion for 126 Rafales in its
commercial bid in the medium multi-role combat aircraft (MMRCA) tender. Even accounting
for inflation, negotiators say an $8.8 billion bid for 36 fighters is hard to
justify.

In fact,
that is Dassault’s selling price, given that the Rafale is being built only in small
numbers that do not allow economy of scale. The French air force and navy
slashed Rafale orders to just 180 aircraft, of which barely 140 have been
delivered.

Foreign
orders have been painfully slow in coming. Early last year, Egypt ordered 24
Rafales for $5.9 billion --- a price tag in line with what India is being
offered. That was followed last May by an order from Qatar for 24 Rafales for
$7 billion, a cost that included missiles to arm the fighter.

In comparison
Eurofighter GmbH has orders of some 600 fighters (almost 500 delivered) from
six countries, with more orders in the pipeline. Similarly, there are more than
500 American F/A-18 Super Hornets already in service; Boeing is pitching
strongly to build these in India for an estimated cost per fighter of just over
$100 million.

What is
especially worrying to defence planners, though apparently not to the Indian
Air Force (IAF), is the long-term cost of the Rafale. Analysts cite the thumb
rule that the cost of operating a fighter through its three-decade service life
cycle is about 6-10 times its procurement cost. That means the IAF would pay Rs
354,000-590,000 crore, in current rupees, as the Rafale’s operating cost over
30 years. Annualised, this amounts to Rs 11,800-20,000 crore per year, far more
than what the IAF can afford.

“In the final balance, the government will have
to decide whether it can afford to pay so much for political posturing on
defence. If it abandons fiscal prudence in the belief that this would be
someone else’s problem in the future, future governments will pay for the
Rafale from some other -- probably more critical --- defence head. Ultimately,
funds for defence are finite”, says a prominent aviation analyst, speaking
anonymously.

22 comments:

Anonymous
said...

On the price we need to bear in mind that this includes life cycle costs so it is not that we pay 8.8 Billion dollars when the 36th aircraft is delieverd. It means that over the 40 year life of the craft this amount will be incurred although a large share of this will be done initially. But also we must imagine what it would have cost us if we had gone in for 126 rafale's, essentially ending up paying 1 years defence budget to fulfil that contract even though it would have been built in India. Clearly we cannot afford 126 rafales and to that extent this govt did the right thing by cutting down on the numbers. let's hope a cheaper alternative comes up but clearly this will neither be russian nor indian make. but looking at the overall price tag, we must look also at alternatives like F35 JSF. although it is no match to rafale on payload, it very well makes up for that on the avionics and stealth. I hope someone thinks in this direction especially with no future of fgfa project.

For an aircraft that first flew in 1986, that is a lot of money. The cost will double when upgrades or MLU are needed 20 years from now. Shows a lack of vision of the Governments in the 1980's and inability to learn from Mig-29/Mirage-2000 upgrades each of which have cost a bomb! Better off getting more Su-30MKI in spite of issues with Russia. At least training, logistics would be cost saver. China has two 50th generation fighter planes and our 3++/4g Tejas is not even in service. AMCA is on the drawing board. God save India if she has to fight a war on two sides!

This deal has been on since 2007. I do not think we as a nation can walk off after making 5 companies dance for so long.Post Kargil IAF wanted to buy Mirage 2000. MoD found ingenious ways to say NO. Then came with competitive evaluation. This just means our Babudom is simply incompetent to say yes. They find reasons to say No or push files back & forth.

So the decision necessarily needs to come from from Politicians.The we accuse them of playing games !

What we should do,is stop pensions of all defence secretaries since 1999 , in any other country they would put behind bars with keys thrown away. Let us not curse Modi or Parrikar or even IAF.Next let the 5 star chief of defence staff be made defence secretary. I am sure things will be straighten up in a few months.

Any capital acquisition has to look,at what IT guys calls,as TCO.Total Cost of Ownership.This is computed,over the life of the asset. The technology guys choose the lowest TCO.Else their CFOs dont sign,off on the expenditure. If the TCO of 36 RAFALE are going to be US$100 billion over its lifetime.Thats saying a lot.It says each aircraft is going to cost you an aircraft carrier or two!At the rate squadrons decimate, due to crashes.The 36 @aircraft will ALL disappear before their end of lifetime period.So expenditures for no assets,or for nothing.There is no point in doing this,just to keep the French ready.Either work on the SU 30 and their next variant or our own desi variant of Tejas or

The Government seeks to portray this deal as a great success. In reality, however, it is a reflection of the abject failure of the Government (the IAF and MOD included) in meeting national defence needs in a timely manner. The IAF - as it had originally projected - needs 6-10 squadrons of MMRCA aircraft (126-200 aircraft) to meet the threat of a two-front war. Even so, it would remain inferior to China in the light-weight aircraft segment (since induction of the Tejas 2 - assuming it lives up to the requirements - is delayed) and the heavy-weight 5th generation aircraft segment (the PAK-FA with Russia) is making no progress. Thus, this deal to acquire 36 aircraft (2 squadrons without war wastage reserves at that) is neither here nor there. This is just political showmanship concealing the incompetence of the defence planning and procurement apparatus.

The failures are many: the IAF and MOD planned the 6-10 squadron requirement and wasted several years in a tender exercise when they should have realised that this would not be an affordable proposition; it was conducted with sense of urgency; costs spiralled into the realms of fantasy and in the end the inevitable happened. There was no back-up plan. In the end the IAF will have to make do with what it manages to cobble together (as it is doing in the light-weight segment with the over-aged MiG21) putting pilots lives at risk. The country will lose air superiority to China and Pakistan with consequent risks. The only beneficiaries will be the IAF brass and bureaucrats who will retire into cushy sinecures, and of course the netas.

What's the harm in settling for a F-16/F-35 combination though single engined but still we can afford a much larger of aircraft than just 2-3 squadrons of Rafales.how will the IAF justify the Super hornet when it couldnt make the cut during the MMRCA trials?

You seem to be right. The deciding factor is hardly which aircraft meets our need best, most economically. It is - what can Modi do soon enough to counter the image of harming national security? It seems tht the Rafale deal is handy so it might be used. Who cares for Indian defence, anyway? Neither the ministers, nor its people.

Only in India can you find a Government willing to pay billions of dollars to a foreign company, for an overpriced product it really doesn't need , but can't find money for basics like new ballistic protection, thermal imaging and sights as well as modern communications for its troops.Nobody from the Government or IAF have been able to make a business case for this aircraft. I can't believe that this is the same air force which was a world leader with the SU-30 MKI

"Egypt ordered 24 Rafales for $5.9 billion --- a price tag in line with what India is being offered. " If this is the competence of a defense journalist one can only imagine what others must be doing .Egypt deal includes almost a billion dollar FREMM frigate , it also includes missiles .

This cost of 8.8 billion dollars includes the cost of setting up the ground handling support at the base. It also includes the Missiles and other munitions. And the MRO cost as well. For any future purchases we will not need to incur the cost of setting up the ground handling support.

This is true for any new platform.

We should compare the cost of procuring the first batch of Su-30 MKI in 1996 with the Rafale acquisition after factoring inflation. We procured 40 jets at that time.

Horrifying, terrifying sticker shock. The cost is more than what it takes to reach Mars.

$8.8 billion tag, distributed over 36 aircraft, puts the cost of each Rafale at $244 million (Rs 1,640 crore)That means the IAF would pay Rs 354,000-590,000 crore, in current rupees, as the Rafale’s operating cost over 30 years. Annualised, this amounts to Rs 11,800-20,000 crore per year

Too much. Cancel the deal fast, cancel it now. Why drag it out any longer? It was obvious from the start that the cost was too high.